New Law Shakes Up Buyer Representation in California—What It Means for Commercial Real Estate

A major shift has arrived in California real estate, and if you’re in the business—whether residential or commercial—you need to pay attention.
 
As of January 1, 2025, Assembly Bill 2992 (AB 2992) requires that real estate agents representing buyers must enter into a written buyer-broker representation agreement with their clients. While this practice has long been common in residential real estate, the fact that it now extends to commercial transactions adds a new layer of formality—and potential friction—to the way deals get done.
What’s in the Law?
For starters, this isn’t just a suggested best practice. Under AB 2992, written agreements are now mandatory when representing buyers. No more handshake deals or loosely defined relationships. Brokers must present and execute a buyer-broker representation agreement with their client before submitting an offer on a property.
These agreements must include:

• The broker’s compensation terms

• A breakdown of the services the broker will provide

• The conditions under which the broker gets paid

• The duration of the agreement and how it can be terminated

For individual buyers, these agreements cannot exceed three months—and automatic renewals are prohibited. However, if the buyer is a corporation, LLC, or partnership, there’s no limit on duration.
In addition, before signing, brokers must provide buyers with a written agency disclosure form, ensuring they fully understand the nature of the representation and the broker’s role in the transaction.
What This Means for Commercial Real Estate
While commercial brokers are no strangers to formal agreements, this law forces a more structured and transparentapproach to buyer representation. In some ways, this is a good thing—establishing clear expectations up front can reduce misunderstandings later. But in an industry where relationships and flexibility are key, some see this as unnecessary government interference.
Brokers will now need to:

• Lock in client commitments earlier. Those informal “let’s see what’s out there” conversations may now need to be backed by signed paperwork sooner than some clients expect.

• Clearly define compensation terms. No more vague or open-ended agreements. Brokers must spell out exactly how and when they will be paid.

• Educate clients about the new rules. Some buyers, especially those used to the old way of doing things, may push back on signing agreements upfront. Brokers will need to walk them through why this is now required.

The Big Picture
California has been moving toward more consumer protection in real estate for years, and AB 2992 is just the latest step. While it might create short-term headaches for brokers who are used to looser arrangements, it ultimately aims to bring more clarity and accountability to buyer-broker relationships.
Whether this shift strengthens the industry or just adds another layer of red tape remains to be seen. But one thing is certain—if you’re working with buyers in California real estate, you’d better get those agreements in writing.

Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104. His website is allencbuchanan.blogspot.com.
 
 

What the Monterey Peninsula Can Teach Us About Commercial Real Estate

As I shared last week, I celebrated the 68th year of my birth recently. My wife treated me to a weekend at Pebble Beach. I know. But someone had to do it.
 
We stayed in a spot overlooking the iconic Pebble Beach golf links—home of the annual AT&T Pro-Am and countless major championships over the years. The golf course has witnessed so many unforgettable moments, from Jack Nicklaus’ famous one-iron shot to a foot at the 17th hole in the 1972 U.S. Open to Tiger Woods’ runaway U.S. Open victory in 2000. Orange County is well represented, too, with Mark O’Meara hoisting the AT&T trophy a record five times and Jordan Nasser claiming the title of California amateur champion there in 2006. As a lifelong golfer, I was in awe.
 
The weather can be a bit tricky in January, but we rolled lucky snake eyes—clear skies and cool temps. Perfection!
 
So what do my ramblings about the former home of the Crosby Clambake have to do with commercial real estate?
When you think about Pebble Beach, it’s easy to picture the world’s greatest golfers competing on a pristine course, overlooking the rugged coastline. But beneath the beauty and the legends, Pebble Beach is a masterclass in careful planning, adaptability, and excellence—the same principles that apply to success in commercial real estate. 
 
Let me share a few lessons I learned during my visit.
 
It’s the journey, not the destination, that matters.
Each hole at Pebble Beach presents a unique challenge, much like every deal in real estate. Some days, the weather’s perfect, and every shot falls into place. Other days, you’re fighting wind, sand traps, and frustration. But just like in golf, the process of getting there—the strategy, the effort, the adjustments—is where the real value lies. The destination—a trophy, a closing—is just the cherry on top.
 
Professional golfers and real estate agents eat what they catch.
Golfers and real estate professionals share a bond: there’s no safety net. A missed putt or a deal that falls through means starting over. But that pressure drives us to be resourceful, resilient, and relentless. It’s not for everyone, but for those who thrive under the challenge, the rewards are sweeter because we’ve earned every bit of them.
 
Don’t overlook the trees for the forest.
Golfers know that every hole, every shot, every decision matters. It’s tempting to focus on the big picture—your scorecard, the finish line—but the real work happens one stroke at a time. In real estate, the same holds true. It’s the small details that often make or break a deal—a clause in the contract, the way you handle a client, or even the vibe of a property. Don’t lose sight of the trees.
 
Focus on the freedom.
Standing on the 18th fairway at Pebble Beach, gazing out at the Pacific, I couldn’t help but feel an incredible sense of freedom. Golf, like real estate, offers that in spades. You’re not tied to a desk or a clock. Sure, there are deadlines, but the autonomy to chart your own course is priceless.
 
There are many ways to score.
The beauty of golf—and real estate—is that there’s no single path to success. Some win by overpowering the course with booming drives, others by finesse around the greens. In real estate, success can mean building relationships, mastering negotiations, or finding creative ways to add value. The key is to play to your strengths and embrace the diversity of opportunities.
 
As I soaked in the beauty of the Monterey Peninsula, I realized how much the game of golf and the art of real estate have in common. Both demand patience, creativity, and a deep appreciation for the journey. And both, when done well, offer rewards far beyond the scorecard.
 
So, the next time you’re out on the course—or walking through a property—remember this: it’s not just about where you’re going. It’s about how you get there. And sometimes, the view along the way is the greatest reward of all.

Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104. His website is allencbuchanan.blogspot.com.
 
 

A Review of My 2024 Predictions

Seasons greetings dear readers as we eye Christmas in the rear view mirror, and Kwanzaa and Hanukkah as they’re  proceeding! It’s truly the season of giving and from all of ours to all of yours - best wishes!
 
Two of my favorite columns to write each year occur during this time - my previous year scorecard and my predictions for the year to come. Last year, I wrote my 2024 prognostications on the heels of an Alabama football defeat - which as a native Arkansan - warmed my heart. We’ll have to wait much longer this year as the NCAA football champ will be crowned in a few weeks. But I digress. On to how I did in 2024. 
 
In 2024, I wrote: Industrial lease rates will soften. This time last year, a client of ours was facing an expiring lease. We tried to find a suitable alternative to move his operation. Nothing was ideal. We advised him to stay put, negotiate a short term fix - 6-12 months and continue our search. His owner would only agree to six months so we had a new deadline - June of 2023. We nearly struck pay dirt in March but jettisoned the opportunity due to its size - just not quite big enough. Once again, we approached his owner asking for some more time. He agreed to extend through December. Our gamble paid off as we secured a suitable building at a 15% discount! Why, you may wonder? Simple economics. We tracked new avails and ones leaving the market and noticed an imbalance. Yep. More was coming than going. We knew someone would drop their rate to secure a great tenant. Expect more of the same this year - especially with Class-A buildings above 100,000 square feet. At last count in the OC - eleven were open for business and seeking a resident. Two left the market last year. Hmmm. Someone will get motivated and make a deal, comps will reset to the new level and the frenzy will begin.  BOOM! Nostradamus take note. In the IE where big boxes prevail, a precipitous increase in concessions has occurred - free rent, tenant improvements, beneficial occupancy, etc. Rates have dropped another 15%. Expect more of this as we absorb the remaining spaces. 
 
In 2024, I wrote: Expect sales volume to increase. The forces outlined in the paragraph above will trickle into the sales world. By that, I mean  an owner awaiting a tenant may choose to sell. A further catalyst could be the underlying debt on the asset. Imagine you’ve originated a short term construction loan to build a class A structure. You considered construction costs, time to build and lease. Your calculus was based upon conditions in early 2022. You’ve delivered a new building into an entirely different market - longer vacancy and lower rates. Your lender might be getting a bit nervous. When will the maturing debt be repaid?Thus pressure to dispose of the new build. YES! Selling in the beginning of 2024 was a pipe dream - no one was a seller. Now, sales are happening at a higher clip. 
 
In 2024, I wrote: Recession or no? I say no. Last year I took a contrarian approach and predicted we would avoid a recession in 2023. Recall, recession is a decline in gross national product for at least two quarters. I believed in the resiliency of the United States economy, especially the consumer, and we skated by a recession in 2023. As I write these predictions today, the only storm clouds I see on our horizon, are global uncertainty in the Middle East. Specifically, will the Red Sea shipping lane disruption cause inflationary pressures on goods delivered? If this proves to be the case, the federal reserve may be persuaded to delay cuts in interest rates, which are predicted for this year. However, I’m reminded of our status in January 2020. We were rocking along when a microscopic foe sent us to our spare bedrooms. Therefore, beware of the Black Swan event. WOW! Three for three. In fairness, I did walk this back a bit in my mid year adjustments, but alas, we avoided a recession and stuck the landing. J Powell in da house. But will he be there next year?
 
In 2024, I wrote: Interest rates. Last year, for the first time in a couple of decades, you could actually make money on idle cash. We saw a peak in Treasuries occur last year when the 10 year T-note eclipsed 5%. The rate this morning is slightly above 3.8%. This is good news for borrowers, bad news for savers and could cause an uptick in institutional buying activity. These behemoth money managers are constantly seeking return and might view commercial real estate as a safe haven to earn some additional juice. I believe the 10 year notes will level at around 4 to 4.25% percent this year. MIC DROP! OK. We’re a bit above the 4.25% level but significantly below the 5% we eclipsed this time last year. Plus the yield curve has flattened so that short term rates are below long term rates - a good thing for lenders. 
 
So? I’ll give myself a 3.5 out of 4. Not bad for a rookie. Stay tuned for next week when I’ll see what’s in store for 2025. 
 
Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104. His website is allencbuchanan.blogspot.com.

AI’s Impact Upon Commercial Real Estate

Chat GPT, Open Source’s artificial intelligence model, broke onto the mass market approximately two years ago. When Microsoft invested billions of dollars into an unproven technology, you knew this was a big deal.  
 
You can’t talk about the future of commercial real estate without recognizing the massive impact artificial intelligence is already having. ChatGPT, OpenAI’s groundbreaking model, burst onto the scene just two years ago, and the ripples have been impossible to ignore. When Microsoft poured billions into OpenAI, it became clear this wasn’t just another passing tech trend.
 
I wrote one of the preceding paragraphs. Can you guess which one? Exactly! 
 
So. There is one example. Using AI to draft long form narratives - blogs, stories, property descriptions, case studies and the like. 
 
But to only highlight this function would be to dramatically understate its capabilities. 
 
Recently, our office of Lee & Associates selected a new President. A committee was formed of which I was a member. We used AI to craft a job description for the position. We asked each candidate to prepare a business plan. These plans were poured into the engine and asked to compare and contrast each candidate based upon their plans vs the job description. Created from Chat were ten interview questions and a scoring system based upon each response. Chat even chose the most likely to win the ratifying vote. How’d it do, you may ask? Well, the candidate it chose wasn’t the candidate selected by the vote. Suffice it to say - we humans still reign. 
 
To explore how AI will impact the eight key steps of brokerage, let’s break it down step by step. AI isn’t just a buzzword—it’s a tool that can enhance every phase of the process, making agents more efficient and effective while providing deeper insights. Here’s how:
 
1. Sourcing. AI excels at combing through massive datasets, from public records to online listings, to identify properties or clients that align with specific criteria. Machine learning models can analyze market trends, demographic shifts, and historical data to pinpoint opportunities agents might otherwise overlook. Tools like predictive analytics can even forecast areas primed for development or investment.
 
2. Finding. AI-powered platforms streamline the property search process by matching client needs with available options. Imagine entering a set of requirements—location, size, zoning, budget—and having an AI return a tailored list of properties in seconds. Virtual tours enhanced by AI can also give clients a more immersive understanding of spaces without setting foot on-site.
 
3. Qualifying. AI can automate the process of qualifying leads, saving agents time and energy. Chatbots and CRM integrations can engage with prospects, ask key qualifying questions, and prioritize leads based on their likelihood to close. AI tools also analyze creditworthiness, tenant histories, or business viability to ensure prospects meet necessary criteria.
 
4. Controlling. Managing the flow of information and timelines is critical. AI tools like project management software can keep deals organized, automate follow-ups, and provide reminders for critical deadlines. Natural language processing can even analyze communication patterns to detect when a deal might be at risk, giving agents the chance to course-correct.
 
5. Execution. During the negotiation and documentation phase, AI can analyze lease terms, purchase agreements, and market comps to provide insights or identify red flags. Smart contracts, driven by AI and blockchain, can automate parts of the execution process, ensuring compliance and accuracy while reducing the time spent on back-and-forth negotiations.
 
6. Closing. AI can improve the closing process by streamlining workflows, automating document generation, and ensuring all compliance requirements are met. It can also track progress on escrow, title searches, and financing approvals, reducing the likelihood of delays. Digital signature platforms with AI integration further simplify the closing process.
 
7. Compensation. AI can help ensure compensation agreements are tracked accurately and fairly. Systems integrated with AI can calculate commissions, track payments, and generate transparent reports for all parties involved. Additionally, predictive analytics might help agents model future compensation scenarios based on their deal pipelines.
 
8. Continuation. The work doesn’t stop after the deal closes, and AI ensures agents stay top-of-mind with their clients. Automated follow-up systems powered by AI can check in periodically with past clients, send personalized updates, or even flag when a client might be ready for another deal based on activity patterns.
 
Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104. His website is allencbuchanan.blogspot.com.
 
 

How To Make Sense of Multiple Proposals

Balance in a market - or lack thereof - can dictate how offers are made or received. Think about it this way. If you’re an occupant in a buyer’s market, you have myriad choices. Conversely, try to transact in an environment weighted toward owners and you’ll be lucky to have any choices. In the industrial real estate arena, this balance has tipped in favor of occupants. Not terribly long ago, this wasn’t the case. But the spate of new development coupled with a softening in demand has created a glut of available properties. 
 
In a balanced environment - where supply and demand are at parity - a negotiation would unfold like this. A need emerges. The alternatives are considered - three to five of them. The best is selected for function and value. An offer is made. A back and forth ensues. Agreed upon points are reduced to a contract. The deal is completed. Easy! 
 
Now, tip the scales in favor of the occupant or the owner and a very different approach must be employed. We start with the need. But in an occupant hedged domain, rather than three to five alternatives, there are twenty! And, there could be a number of these available buildings that are functional and can be leased or purchased at a great value. So how do you make sense of this clutter and refine it to the best option. 
 
What follows is a strategy I employ. 
 
1. Clarify the Need
Start by defining the fundamentals of what you’re looking for:
Are you leasing, purchasing, or considering a hybrid option? What incentives (e.g., free rent, tenant improvements) are critical? What is your budget? Consider base rent, escalations, and other costs like common area maintenance (CAM) fees. Do you need special features like upgraded office space, employee parking, or nearby dining and retail? Is the property move-in ready, or will it require modifications? Is ownership an option, and how does it align with your long-term operational goals?
 
2. Establish a Shortlist Using the S.P.A.C.E. Framework
In a market flooded with options, narrowing the field is essential. Use the S.P.A.C.E. framework to assess each property’s strengths and weaknesses:
1.   Structure of the Deal:
·        Are the lease or purchase terms favorable and flexible?
·        What incentives are offered, such as tenant improvements or free rent?
2.   Price:
·        Is the rent or purchase price competitive within the market?
·        What additional costs, like property taxes or operating expenses, impact the total cost?
3.   Amenities:
·        Are there value-added features like upgraded office areas, energy-efficient systems, or nearby retail and dining options for employees?
·        Does the property provide unique advantages, such as expanded parking, fitness centers, or collaborative spaces?
4.   Coordinates - Location:
·        Is the location approximate to Mears, key, employees, and customers.
·        Are the streets surrounding the building conducive to truck traffic?
5.   Equity of Ownership:
·        If ownership is an option, what are the financing terms?
·        How does owning versus leasing align with your operational and financial goals?
·        If you are leasing, what is the financial position of the ownership. Will they be able to fulfill the terms of the transaction?
 
3. Solicit Proposals
Once you’ve identified your top candidates, request detailed proposals. These should include:
·        Pricing (base rent, escalations, CAM fees, purchase price)
·        Terms (lease length, purchase options, tenant improvements)
·        Key features (amenities, condition, and ownership opportunities)
 
4. Rank the Alternatives
·        Property A scores highest for deal structure and price but lacks sufficient amenities.
·        Property B scores well across all categories, offering both favorable terms and modern amenities.
·        Property C offers ownership potential but requires significant upfront investment in renovations.
This process provides a clear, objective way to prioritize options.
 
5. Engage in Negotiation
With your top-ranked property identified, enter negotiations. Use your position in an occupant-favored market to secure the most favorable terms:
·        Extended free rent or higher tenant improvement allowances
·        Flexible lease terms or ownership incentives
·        Concessions like lower operating costs or early occupancy
If negotiations stall or due diligence reveals concerns, pivot confidently to your next choice.
 
6. Trust, but Verify
Even with a top-ranked option, thorough due diligence is critical. Conduct property inspections, financial reviews, and legal checks to ensure the property meets all expectations.

Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104. His website is allencbuchanan.blogspot.com.
 
 

Lack of Demand in Industrial Real Estate

Good day, dear readers! Today I feel a bit professorial. Therefore, I’ll discuss a phenomenon we’re witnessing in the industrial real estate market in Southern California—the lack of demand.
 
What is demand, you may ask? In this context, demand stems from a need created by external factors. Think for a moment about your own household. If you suddenly realize you’re out of coffee, you have a need created by an external factor—someone forgot to put coffee on the shopping list. Consequently, you rush to your corner Starbucks or neighborhood Albertson’s to get your caffeine fix.
 
Demand in industrial real estate works in much the same way. It arises from changes in business activity, external economic factors, or shifts in the marketplace. In the halcyon days of 2020 and 2021, as many of us were quarantined in our home offices, a surge in online shopping occurred. Retail giants like Amazon, Walmart, Costco, and Target ramped up their inventories to avoid stock shortages, leading to a massive boom in demand for warehouse space.

Two things happened:

1.       On-hand inventories swelled to unprecedented levels.
2.       This massive uptick in inventories led to historically low vacancy rates in industrial spaces, especially in logistics hubs. As a result, rents and sale prices for warehouse space soared, and smaller retailers began relying heavily on third-party logistics providers (3PLs) to manage distribution. These 3PLs also scrambled to lease more space to meet the growing needs of their customers.

But by the summer of 2022, everything changed. The business climate cooled, interest rates rose, and the once-voracious demand for industrial space slowed down. No longer could the industry count on Amazon absorbing millions of square feet of space to fuel growth.
 
However, today’s lack of demand feels different. It’s more systemic—driven not only by market corrections but by a deeper uncertainty. When businesses are uncertain about the future, they hesitate. They are less likely to acquire competitors, hire new employees, venture into new business deals, or lease additional space. And this hesitation is what we’re witnessing now.
 
What’s Causing the Uncertainty?

I believe several factors are at play that contribute to the lack of demand in industrial real estate:
1.       Upcoming Election: Political transitions and elections often lead to a wait-and-see approach from businesses. They want to know which policies will be implemented before making large commitments.
2.       Global Tensions: From trade wars to geopolitical conflicts, uncertainty on the world stage makes companies think twice before investing in new space or expanding operations abroad.
3.       Federal Reserve Moves: The Federal Reserve’s interest rate hike shave made borrowing more expensive, which in turn raises the cost of financing real estate transactions. This has caused both tenants and investors to hit the pause button on deals that previously made sense financially.
4.       Natural Disasters: The growing frequency of natural disasters—wildfires, hurricanes, floods—has added a layer of risk to real estate decisions. Companies are increasingly aware of the potential impact of these events on their operations and are cautious about committing to long-term leases or purchases in areas vulnerable to climate change.
5.       Record-High Rents and Sales Prices: After years of rapid growth, industrial real estate prices have hit record highs, making it difficult for tenants to justify paying such premiums, especially in uncertain economic times.
6.       Higher Interest Rates: With interest rates on the rise, the cost of borrowing for expansions, acquisitions, or even renewing current leases has significantly increased. This has forced many companies to reconsider their growth plans or downsize their space requirements.
7.        
What’s Next for Industrial Real Estate?

While this slowdown in demand is significant, it doesn’t spell doom for the industrial real estate market. Instead, it signals a recalibration—a moment to step back, assess, and adjust strategies for both owners and tenants.
For tenants, this cooling market could present opportunities to negotiate more favorable lease terms, secure rent reductions, or lock in concessions like tenant improvements or free rent periods. Meanwhile, for landlords, this is a time to consider flexibility—offering shorter lease terms, more aggressive incentives, or even speculative development that aligns with future market shifts.
 
As we move forward, it will be crucial to keep an eye on the macroeconomic factors—interest rates, geopolitical developments, and economic policy decisions—that continue to shape demand. The industrial real estate market has proven its resilience over the years, and while today we may be facing a lull in demand, tomorrow’s landscape may very well be different.
 
Conclusion
So, where does that leave us? While the current market conditions are challenging, this period of lower demand is not necessarily a long-term problem. Instead, it’s an opportunity—for businesses to secure better deals and for property owners to reevaluate and reposition their assets. As we all navigate through this uncertainty, one thing remains clear: industrial real estate will continue to adapt, evolve, and play a critical role in the broader economy.
 
Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104. His website is allencbuchanan.blogspot.com.

Executing a Purchase Escrow in Commercial Real Estate

As commercial real estate professionals, we facilitate both lease and sale transactions for our clients. While the steps leading to both types of deals are similar, the execution diverges significantly once terms are agreed upon. In leasing, once the document is signed, our role diminishes—aside from helping with city approvals or coordinating tenant improvements. However, in a sale, our involvement intensifies as we guide the process through escrow to ensure the transfer of title and ownership. 
 
Today’s column walks you through the essential steps in managing a smooth purchase escrow.
 
Deposit wired to escrow
One of the first actions after signing the purchase agreement is ensuring the buyer’s deposit is wired to the escrow holder. This demonstrates the buyer’s commitment and allows the formal escrow process to begin. Failing to make this deposit in a timely manner can result in delays or even jeopardize the entire transaction.
 
Sign the property information sheet
The property information sheet is crucial for ensuring the buyer has all necessary details about the property, such as zoning, utilities, and any existing conditions. It also serves as a checklist to confirm that both parties agree on the property’s specifics, preventing any last-minute surprises.
 
Engage consultants for due diligence
The property condition assessment (PCA) and Phase I environmental report are key to identifying any potential issues with the property. These assessments provide a comprehensive look at the building's structural integrity and environmental safety, ensuring that the buyer isn't inheriting hidden liabilities. Hiring reliable consultants early in the process avoids delays.
 
Get your lender moving
Lenders often require third-party reports, particularly appraisals, which can be time-consuming. Ensuring your lender begins these processes early can prevent bottlenecks later in the escrow period. Timing is critical here, as any delay in the appraisal or other required reports can push the closing date back.
 
Organize transaction documents
Creating a Dropbox or another shared platform for housing all transaction documents keeps everyone—buyer, seller, attorneys, lenders—on the same page. Having easy access to all documents allows for smoother communication and avoids the risk of lost paperwork.
 
Calendar key dates
Every purchase and sale agreement has specific timelines, from the deposit deadline to the closing date. It’s essential to calendar these dates to stay ahead of any upcoming deadlines. Missing a critical date could cause the deal to fall apart or, at the very least, complicate negotiations.
 
Create a lease between the LLC and the operating company
In cases where the buyer is an owner-occupant purchasing the property through an LLC, creating a lease agreement between the LLC and the operating company is crucial. This ensures the property remains properly structured from a legal and financial standpoint. Additionally, this arrangement can offer tax advantages and protect the buyer's personal assets.
 
Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104. His website is allencbuchanan.blogspot.com.

What New England Can Teach Us About Commercial Real Estate

As someone who has spent considerable time exploring the winding roads, charming villages, and bustling cities of New England, I’ve come to appreciate that this region offers more than just scenic beauty and history. There’s a certain rhythm here, a way of doing things that’s deeply rooted in tradition yet surprisingly innovative. And as I reflect on my experiences, I can’t help but see parallels between the lessons New England offers and the world of commercial real estate.

Lesson 1: Value in Preservation
New England is a region that values its history. Whether you’re walking the cobblestone streets of Boston or admiring the colonial architecture in towns like Portsmouth, New Hampshire, you quickly realize that preservation isn’t just a buzzword here—it’s a way of life. The same can be said for commercial real estate. Often, the most valuable properties aren’t the new builds with all the latest amenities but the ones that have stood the test of time. Just as New Englanders know the value of a well-preserved historic home, real estate investors should recognize the potential in older buildings. With a little care and strategic renovation, these properties can become not only profitable but also integral parts of the community.

Lesson 2: Embrace Seasonality
One of the most charming, and sometimes challenging, aspects of New England is its distinct seasons. The region goes from vibrant fall foliage to harsh winter snow, followed by the gentle thaw of spring and the warmth of summer. This seasonality teaches resilience and adaptability—traits that are equally important in commercial real estate. Markets, like seasons, change. There will be highs and lows, periods of growth, and times of stagnation. The key is to embrace these cycles, prepare for them, and adjust your strategies accordingly. Just as New England businesses might shift their focus from skiing in the winter to coastal tourism in the summer, commercial real estate owners need to be nimble, adjusting their property management and marketing strategies to the ebbs and flows of the market.

Lesson 3: Community is King
In New England, community isn’t just an idea; it’s a lived experience. Town meetings, local businesses, and neighborhood gatherings are the lifeblood of this region. It’s a place where people know their neighbors and where local businesses are fiercely supported. In commercial real estate, fostering a sense of community can be just as crucial. Whether you’re managing a mixed-use development or a single office building, creating spaces where people want to gather—where they feel a sense of belonging—can dramatically increase the value of your property. Think of your tenants as community members, not just rent checks. When you invest in their success, you’re also investing in the long-term success of your property.

Lesson 4: Respect for the Land
New Englanders have a deep respect for their natural surroundings, whether it’s the rugged coastline of Maine or the rolling hills of Vermont. This respect translates into a thoughtful approach to land use—something that’s increasingly important in commercial real estate. Sustainable practices, from energy-efficient buildings to green spaces, aren’t just trends; they’re becoming necessities. Properties that align with these values are more attractive to tenants, investors, and regulators alike. Just as New England’s landscapes have been carefully maintained for centuries, so too should our commercial properties be developed with an eye toward long-term sustainability.

Lesson 5: Innovation Rooted in Tradition
Finally, New England is a region that innovates while honoring its roots. From the tech hubs of Cambridge to the traditional craftsmanship in Vermont, there’s a unique blend of old and new here. In commercial real estate, this balance is crucial. While it’s important to stay ahead of the curve with the latest technologies and trends, there’s also value in holding onto the tried-and-true practices that have proven successful over time. Whether it’s a new smart building or a classic brick-and-mortar storefront, the key is to integrate innovation in a way that respects the property’s history and purpose.
In the end, what New England teaches us about commercial real estate is that success isn’t just about the latest trends or the most modern designs. It’s about understanding the value of history, the importance of community, and the need for resilience and adaptability. It’s about respecting the land, embracing change, and finding that delicate balance between innovation and tradition. So, the next time you’re faced with a real estate decision, take a page from New England’s book—you might just find the inspiration you need to succeed.
 
Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104. His website is allencbuchanan.blogspot.com.

2024 Predictions - A Mid Year Update

Today marks the end of the first half of 2024. Wow! Christmas decorations will grace the shelves of do it yourself retailers in no time. Be sure and buy yours early. After all, you’ll want to make sure your Christmas lights are donned by Labor Day. But, I digress.  Today, I thought it would be interesting to take a look at the predictions I made in January of this year to see how they are progressing. It’s always a good idea to make sure you’re on the right track - especially when advising owners and occupants of industrial real estate in Southern California. 
 
So with that as a backdrop, let’s review what I had to say six months ago, how those predictions are faring, and what’s in store for the balance of the year, shall we?
 
Here’s what I had to say in January 2024. Industrial lease rates will soften. This time last year, a client of ours was facing an expiring lease. We tried to find a suitable alternative to move his operation. Nothing was ideal. We advised him to stay put, negotiate a short term fix - 6-12 months and continue our search. His owner would only agree to six months so we had a new deadline - June of 2023. We nearly struck pay dirt in March but jettisoned the opportunity due to its size - just not quite big enough. Once again, we approached his owner asking for some more time. He agreed to extend through December. Our gamble paid off as we secured a suitable building at a 15% discount! Why, you may wonder? Simple economics. We tracked new avails and ones leaving the market and noticed an imbalance. Yep. More was coming than going. We knew someone would drop their rate to secure a great tenant. Expect more of the same this year - especially with Class-A buildings above 100,000 square feet. At last count in the OC - eleven were open for business and seeking a resident. Two left the market last year. Hmmm. Someone will get motivated and make a deal, comps will reset to the new level and the frenzy will begin. What’s happening now. Yes! If you read my column from last week, where I discussed the stages in which price reductions occur, you will realize that we are in the concession stage of price reductions. By that I mean, owners, in order to get their industrial buildings leased, are offering more concessions, such as free rent, enhanced brokerage fees, and potentially moving allowances to attract occupants to their vacancies. I would expect this trend to continue until all of the class a inventory above 100,000 ft.² is absorbed. How long will it take you may be wondering? It’s difficult to say, but I suspect by February or March 2025, will be in a short supply situation once again.
 
Here’s what I had to say in January 2024. Expect sales volume to increase. The forces outlined in the paragraph above will trickle into the sales world. By that, I mean  an owner awaiting a tenant may choose to sell. A further catalyst could be the underlying debt on the asset. Imagine you’ve originated a short term construction loan to build a class A structure. You considered construction costs, time to build and lease. Your calculus was based upon conditions in early 2022. You’ve delivered a new building into an entirely different market - longer vacancy and lower rates. Your lender might be getting a bit nervous. When will the maturing debt be repaid? Thus pressure to dispose of the new build. What’s happening now. In the inland areas of Southern California, such as the inland Empire, we are seeing some institutional owners opt to sell their vacancies as opposed to waiting for that elusive tenant. In this manner, they are able to re-deploy the money into a different market with better fundamentals or return principal investment to their investors. If a building has near term vacancy, meeting a year or two, expect this trend to continue.
 
Here’s what I had to say in January 2024. Recession or no? I say no. Last year I took a contrarian approach and predicted we would avoid a recession in 2023. Recall, recession is a decline in gross national product for at least two quarters. I believed in the resiliency of the United States economy, especially the consumer, and we skated by a recession in 2023. As I write these predictions today, the only storm clouds I see on our horizon, are global uncertainty in the Middle East. Specifically, will the Red Sea shipping lane disruption cause inflationary pressures on goods delivered? If this proves to be the case, the federal reserve may be persuaded to delay cuts in interest rates, which are predicted for this year. However, I’m reminded of our status in January 2020. We were rocking along when a microscopic foe sent us to our spare bedrooms. Therefore, beware of the Black Swan event. What’s happening now. So far, so good. In fact, aside from retail sales, our economy seems to be performing fairly well. Unemployment has crept up slightly, but is still at historic lows. Granted, interest rates are higher than they were two years ago, but still much lower than we have experienced in other decades. Will the federal reserve choose to cut interest rates later this year? Only time will tell, but I believe we may see an interest rate cut after the election.
 
Here’s what I had to say in January 2024. Interest rates. Last year, for the first time in a couple of decades, you could actually make money on idle cash. We saw a peak in Treasuries occur last year when the 10 year T-note eclipsed 5%. The rate this morning is slightly above 3.8%. This is good news for borrowers, bad news for savers and could cause an uptick in institutional buying activity. These behemoth money managers are constantly seeking return and might view commercial real estate as a safe haven to earn some additional juice. I believe the 10 year notes will level at around 4 to 4.25% percent this year. What’s happening now. As of this writing, the ten year T note is hovering around 4.2 to 4.3%. This is significantly lower than the 5% we saw at the end of 2023. As mentioned, Treasury interest rates are a great metric for savers but not such a good metric for those reliant upon borrowing - expanding businesses which need to lease space, buy a facility or machinery and hire. I still believe we will end the year with 10 year rates well below 4.5%.
 
So there you have it., What I said, what’s happening now, and what I expect for the balance of 2024 I wish you and yours a very safe and sane Fourth of July. Let’s make the second half of 2024 the best ever! 
 
 
Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104. His website is allencbuchanan.blogspot.com.
 

What can Little House on the Prairie teach us about Commercial real estate

Fifty years. Wow! Has it really been that long since Half Pint, Ma, Pa and Almanzo graced our tv screens? In a word, yes. Little House on the Prairie, the iconic 1970s series about a pioneer family struggling to make their way on the prairies of Minnesota just celebrated its golden anniversary. Little did I know the series was filmed in our very own Simi Valley, California right down the road from the Ronald Reagan presidential library. Admittedly, my wife is a larger “bonnet head” than I - but I cooperatively loaded the car with water and snacks and left the house at 6:30 in the morning in order to make an 8:45 bus tour of the original filming location. The day unfolded with sights, sounds and scenes from another era - that of our youth and unspoiled innocence shared by many of us in the seventies. I’m officially now a Landon head. 
 
You may be wondering what any of this has to do with commercial real estate? Indulge me as I draw a few parallels. 
 
Sense of Community. In the rolling hills of Simi Valley - err, Walnut Grove - community wasn't just a concept; it was a way of life. The Ingalls family relied upon their neighbors for support and camaraderie, facing challenges together and celebrating victories with a common goal - survival. Commercial real estate brokers also enjoy a strong community forged by transacting together. You quickly discover on whom you can rely, and those that require a bit more caution. Reputation is hallmark. Commercial real estate transactions can be long, difficult, and stressful. If there is enjoyment with your colleagues on the other side of the deal, the journey is so much more fun.
 
Pioneering Spirit. The pioneer spirit runs deep in the veins of characters like Charles Ingalls and his family. Their courage, resilience, and willingness to venture into the unknown embody the essence of taking a risk. The career of a commercial real estate broker is pioneering as well. You see, we are not paid a salary, but rely upon revenue generated from closing transactions. In effect, we eat what we grow. We experience a harvest, similar to the Ingalls, after - many times - a long growing season. But harsh winters or early spring rains can destroy our efforts and crater our work. 
 
Hopeful Attitude. Despite the harsh realities of frontier life, optimism never waned in the Ingalls household. Their hopeful outlook and unwavering determination served as examples to others. Longevity as a commercial real estate broker must start with an optimism for positive outcomes. You simply must look at every situation and know in your gut that something great is going to occur. If you allow negativity to creep into your brokerage, the universe will deliver less than stellar results. Many in our trade are quite superstitious and will not discuss transactions in progress until after they have closed. Pioneering families in the 1800s were also superstitious but relied upon a deep faith in God to carry them through difficult times.
 
Adaptation to Change. Change was a constant companion for the Ingalls family as they navigated through shifting seasons, economic fluctuations, and societal transformations. Their ability to adapt and evolve in response to change was instrumental to their survival and prosperity. Likewise, in commercial real estate, adaptability is key to staying relevant and resilient in a dynamic industry. Who would have imagined the advanced technologies today that allow us to work from anywhere and achieve wonderful outcomes. 
 
Long-Term Vision. Beyond the immediate struggles of pioneer life, the Ingalls family held onto a vision of a brighter future - a vision that fueled their determination and guided their actions. In commercial real estate, having a clear long-term view is essential for success. Setting specific actionable goals is paramount. Necessary for success must be an attitude of “playing the long game” and not getting consumed with short term distractions. 
 
The day resonated deeply with me. I came away with an appreciation of Michael Landon’s legacy, his style and un-compromised standards. His creative character development, attention to detail, and sense of humor gave us a glimpse into the harsh life in the prairie. So, as we celebrated fifty years of Little House on the Prairie, let us also celebrate the enduring wisdom it imparts, guiding us forward on our own journey through the prairies of commercial real estate.
 
Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104. His website is allencbuchanan.blogspot.com.

Advice I’m Giving These Days

Hello friends! I’m penning this on the balcony of my stateroom on a ship somewhere in the Caribbean. With Nassau in our rear view mirror and steaming toward San Juan - the weather is slightly overcast, mid seventies with a mild breeze blowing. Well not really,  but a man can dream. Actually, I’m just pecking away at my dining room table in Orange. But I digress. Today, I go deep on the advice we’re giving to a client of ours who wants to purchase a building. They’re woefully short in space and have placed a bandaid on their growth by adding 3PL pallet positions. 

 
Based upon our direction in early 2024
 
We’re early. Which is good if we can get seller capitulation. Which we have. We’ve actually found someone willing to sell to us. Problem is, our idea of value differs. But, remember 2021? We couldn’t compete with the number of buyers in the market with deep pockets and a rabid desire to own. In my opinion, those times return this year as rents stabilize and interest rates decline.   
 
The real soft spot in the market is the rental market. I believe a financially qualified tenant could make an an unbelievable deal today. Not quite to 2019 pricing - but close. Waiting to purchase costs money. Let’s say today’s value is $358 per square foot and we can strike at $350 per square foot and every month you rent costs $1.00 per square foot. If you wait twelve months, you must buy the same building at $338 per square foot.  
 
So based upon this - their alternatives appear to be. 
 
Stay put. By striking a short term deal with his current landlord, we can watch the market and react when pricing becomes more favorable. 
Positives: 
+ avoid moving twice 

Negatives:
·        space is smaller
·        already racked
·        3PL is costly 
 
Strike a short term Sublease. Similar to staying put but different in that the space need is solved. All of this money is sunk. The client builds no equity and potentially misses out on market opportunity as the two year sublease term is a long time.
Positives: 
+ cheapest space alternative
+ racked 

Negatives:
·        no equity
·        racking RE-config
·        uncertainty after 22 months 
·        two moves
 
Buy the deal we found
Positives: 
+ certainty
+ size
+ divisibility
+ one move 
Negatives:
·        price impasse
·        expensive
 
Lease with an option to buy. 
 
Positives: 
+ lowers his basis
+ rent is equity
+ one move
+ time to ramp up operation 
+ speed of move.
Negatives:
·        absolute non-starter with the ownership
·        difficult to peg an option price
 
Strike new lease.
Positives:
+ preserves operating capital
+ cheaper 

Negatives:
·        no generational wealth creation
·        expense at the end of the term?
·        Over 120 months no equity build-up and loan pay down. 
 
What will the client do? You’ll have to stay tuned as this saga is just now unfolding. 
 
Bon Voyage!
  
Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104. His website is allencbuchanan.blogspot.com.